Savings & Debts

There’s simply too many of us not planning for our financial future.  You plan for the day in the morning but not for tomorrow or the day after tomorrow.  I read in the local papers recently about some chap in his mid 50’s committing to buy a new apartment, earning $1700 a month but using $1600 of it to finance his new home purchase!  He has no additional funds for his kid’s education and barely enough left over to put food on the table.  Talk about living on the edge!

I learnt the hard way about planning for my financial future.  Basically, I nearly spent myself bankrupt when I was younger.  Today, after much heartaches and help from my wife & family, I can say that my financial position is better, but still not perfect.  What I learnt, I want to share with others who may be in my ‘former’ shoes.

To start it off, you will need to STOP SPENDING!  I know it’s hard, especially when there’s a new Ipod model coming out once in a while and a new phone model which you must have coming out every quarter.  Bottomline, it is still only one word, discipline.  You must set yourself the goal of getting out of financial hardship and be sure to stick to this goal.  NEVER get distracted by the new toys or new fashion which will come and tempt you.

With every single cent not spent, SAVE IT!  It may not be much but a little can accumulate to a lot over time.  Always remember, you will need emergency cash.  An emergency will always turn up when you least expect it.  The level you need will depend but it is recommended that you keep at least 3 month’s salary worth of it.  If you have this much, you should be able to survive on this cash even if you lose your job.

The other area of concern will be debts.  Let me state that not all debts are bad.  Experts say that a little debt is actually good as it means you are using your finances wisely.  By using your debts to make the money work harder for you, this is good!  Debt is bad if you have too much of it!  Buying a house when you are nearing retirement age with zero savings is a big NO-NO!

To demonstrate how much debt can cost you, just look at a simple credit card debt.  Say you spent $2,000 to get that new top of the line Duo-core Powerbook!  You charge it to your credit card because you have no savings to pay for it and so you roll-over your monthly repayments for this purchase by paying only the minimum sum of $100 per month.  The following shows you how much you’ve paid in total:

 

As you can see, over a period of 26 months, you have paid a total of about $580 of interest for this purchase.  This is an astounding 29% of interest!  Even if you were to split this amount over a period of 2 years, it is still a whopping 15% per year!  So beware when you buy on credit!  Now you know why the credit card companys will never want you to cut their card up and will gladly waive your annual membership fee when you complain!